November 22 -- Five years after the dot.com bomb leveled
the Westside commercial real estate market, higher rents and higher
demand for office space in areas such as Santa Monica may have
no end in sight.
That's the forecast released last week by Grubb & Ellis Company,
one of the nation’s largest commercial real estate advisory
firms, which found that it is -- and will likely continue to be
-- a landlords' market out there.
"If you look at vacancy rates (on the Westside), it is now
getting close to what it was before the dot-com frenzy,”
said Neil Resnick, vice president and managing director of the
commercial real estate advisory firm. "The difference now
is it is real growth."
Fueled largely by growth in the entertainment industry, the Westside
as a whole saw a 7.1 percent vacancy rate in the third quarter
of this year, just a few percentage points higher than the all-time-low
of 5.8 percent before the dot-come bust, Resnick said,.
However, this time there may be no implosion, he said.
"These are well-established companies with longevity…
(and) they are making money," said Resnick, himself a member
of a start-up dot-com before the industry went bust.
Although his company succeeded – a bit of an "anomaly"
as he calls it – many others did not.
"I remember people were looking around for 40,000 square
feet of office space, which would house roughly 200 employees,"
he said, noting that companies, such as E-Toys – which built
a headquarters on Olympic Boulevard just east of the Santa Monica
border – are no longer around.
But instead of artificial growth during the dot-com era of late
1990's, the entertainment industry, production companies and established
internet companies – such as Yahoo! – are driving
"real growth,” Resnick said.
And there's nothing to stop it. "Who knows how long this
could continue," he said.
Since mid-2004, the Westside has seen an upswing of nearly 20
percent in rents for commercial spaces, he said.
While Beverly Hills has the lowest vacancy rate -- 4.4 percent
--, Santa Monica remains in high demand with a 6.6 percent vacancy.
In addition, average asking prices could soon climb to more than
$4 a square foot in the seaside city, according to Resnick.
One area where demand has risen in the past few years in Santa
Monica is around the Third Street Promenade and along the industrial
corridor between Olympic and Colorado Avenue.
"Santa Monica is one of the healthiest markets on the Westside,"
said Grubb & Ellis Vice President Joseph Gabbaian, who specializes
in Santa Monica commercial real estate. "Rents are increasing
across the board there."
That's because the area, Gabbaian said, has always been attractive
to businesses, especially entertainment, production and post-production
companies, as well as recording studios, casting studios and others.
"Many of them were looking for warehouses or non-traditional
office spaces," he said. "Also Santa Monica has a lot
of other amenities that make it attractive," including the
weather and the beach.
On the Promenade, which claims the highest rental rates in the
city -- retail spaces are now going for between $10 and $12 a
square foot, Gabbaian said.
"It is becoming like Rodeo Drive," said Gabbaian, "A
lot of the mom and pop stores are being driven out. Even if they
are losing money, the big chains want to be there."
Montana Avenue rings in at $6 to $8 a square foot, while rents
are pushing $5 at the Water Garden, the giant office complex on
And the City can expect even more demand, higher rents and lower
vacancy ratesdue to a dearth of new construction.
"I can't think of a single commercial project that is being
built in the City right now," he said. "The problem
is that policies and goals of the City are, traditionally, not
friendly to commercial development."
The demand is so great, many businesses are leaving to Culver
City, said Gabbaian.
Despite a major traffic problem and a shortage of affordable
housing, the market is not expected to cool down anytime soon,
thanks to the booming entertainment sector.
"We still have a ways to go," said Gabbaian.